138 MIMBAR HUKUM Volume 28, Nomor 1, Februari 2016, Halaman 138-148

PRINCIPLE OF CABOTAGE WITHIN ACTIVITIES IN ∗

Harry Purwanto∗∗

Department of International Law Faculty of Law Universitas Gadjah Mada, Yogyakarta Jalan Sosio Yustisia 1, Bulaksumur, Sleman, D.I. Yogyakarta 55281

Abstract Liberalization their logging services makes the concept of cabotage which was known in the field of shipping, has now become part of the field of aviation. Such a situation when associated with the concept of state sovereignty in the air space, juridically has caused a serious intersection. In countries that do not accept the concept of air cabotage, often found smuggling air cabotage laws. Thus requiring the state government concerned to judicial action in order to protect its national company, including the Government of Indonesia. Keywords: sovereignty, cabotage, flight liberalization.

Intisari Adanya Liberalisasi jasa penebangan menjadikan konsep cabotage yang tadinya dikenal dalam bidang pelayaran, kini menjadi bagian dalam bidang penerbangan. Situasi demikian bila dikaitkan dengan konsep kedaulatan negara di ruang udara, secara yuridis telah menimbulkan persinggungan yang cukup serius. Pada negara yang belum menerima konsep cabotage udara, sering ditemukan penyelundupan hukum cabotage udara. Sehingga mengharuskan pemerintah negara yang bersangkutan melakukan tindakan yuridis dalam rangka melindungi perusahaan penerbangan nasionalnya, termasuk Pemerintah Indonesia. Kata Kunci: kedaulatan, sabotase, liberalisasi penerbangan.

Pokok Muatan A. Background ...... 139 B. Research Methods ...... 140 C. Research Results ...... 140 1. State Sovereignty in Airspace and Principle of Cabotage ...... 140 2. Implication of the Air Cabotage Principle in Indonesia ...... 143 D. Conclusion ...... 147

* Summary of legal research, Research Unit Faculty of Law UGM, Period of January-June 2014. ** Correspondence address: [email protected] Purwanto, Principle of Cabotage within Aviation Activities in Indonesia  139

A. Background bilaterally (bilateral agreements) between countries National airspace of a State in addition to (Government to Government) exchanging “freedom its defense area,1 as well as a source of economic of the air”. In order to realize the exchange of strength of the State, which in turn, indirectly acts freedom of the air without prejudice to the existence as means of improving public welfare. Through of State sovereignty in airspace, the cabotage airspace under its sovereignty, the State can manage principle becomes highly significant. its airspace for air traffic. Development of flight Initially, the cabotage principle emerges in routes, both in a national and international scale, shipping activities, thus being a part of the law of the is indispensable in the era of trade liberalization, sea. Through the cabotage principle in the law of the including trade in air services. Trade sea, coastal States may prohibit foreign vessels to liberalization in air transport services has been sail and trade along the coast of that coastal States’ intended to expand market access for foreign service territory. Under the principle of cabotage, the State providers and/or reduce discrimination against has the prerogative right to prohibit the operation service providers. Currently, trade in services, of foreign vessels between two or more sites in the particularly air transport services, is regulated in territory of that State.5 GATS (General Agreement on Trade in Services). Within aviation law, the principle of cabotage One of the most prominent issues in aviation has initially been regulated in the 1919 Paris activities concerns airspace traversed or entered Convention, under Article 16. According to Article by aircrafts. Aircrafts enjoy the freedom to fly 16, each member State of the 1919 Paris Convention in international airspace, whereas aircrafts in the has the right to prohibit foreign aircrafts and allow territory of a Sovereign State shall be subject reservations for the purposes of national aviation to the regulations or national laws of the State to carry passengers, cargo and mail from one place concerned. It should be noted that the principle to another in one region. Moreover, the cabotage of sovereignty plays an important role in flight principle has been readjusted in Article 7 of the activity. As stipulated in Article 1 of the 1944 1944 Chicago Convention. Later in development, Chicago Convention,2 airspace is both complete and the cabotage principle can be agreed between States. exclusive. Consequently, the State below it (under This is in accordance with the characteristic found the country) has absolute rights over its airspace. in international air traffic which has always been Every State has the right to close its airspace above preceded by the existence of bilateral agreements its territory from commercial activities by foreign between States. countries in order to conduct a monopoly of air Until today, relating to the rise of trade transport to and from its territory.3 As found under liberalization including trade in air transport Article 6 of the 1944 Chicago Convention,4 every services, the principle of cabotage in the level of its airspace activity shall obtain “special permission” of implementation in the international community still the State concerned. Providing “special permission” raises pros and cons. Hence, the practice shows some to aviation activities in the airspace is given to any States have accepted the principle of cabotage, while scheduled commercial air activities conducted other countries have not yet accepted the cabotage

1 As occurred on 25 February 2014, Pakistan carried out air strikes on the Taliban in order to maintain its integrity and uphold Pakistan. 2 Article 1 Chicago Convention 1944 declares that the contracting states recognize that every State has complete and exclusive sovereignty over the airspace above its territory. 3 Saefullah Wiradipradja, 1990, Tinjauan Singkat Atas Berbagai Perjanjian Internasional di Bidang Hukum Udara, Lisan, Bandung, p. 21. 4 Article 6 Chicago Convention 1944 declares that no scheduled international air service may be operated over or into the territory of a contracting State, except with the special permission or other authorization of that State, and in accordance with the terms of such permission or authorization. 5 Mieke Komar Kantaatmadja, 1988, Berbagai Masalah Hukum Udara dan Angkasa, Remadja Karya, Bandung, pp. 3-4. 140 MIMBAR HUKUM Volume 28, Nomor 1, Februari 2016, Halaman 138-148 principle in its relation to trade of air transport journals. Search of secondary data is also conducted services within its territory. Even Indonesia, until through the internet. In order to complete or support now, has yet to legally accept the principle of secondary data, such will be complemented by cabotage. Thus, air transport services in the country interviews with the competent resources. are still carried out by national , even though 4. Analysis of the Results national airlines often hold joint operations with Once the data is collected, either in the form foreign airlines. The existence of such practices of secondary data or information, the latter will be generates a temporary assumption that Indonesia initially redacted in order to minimize errors. After aims to accept the principle of cabotage in the that, the data will be grouped according to their field of aviation. Based on the description above, respective categories. Which data will be das sollen the formulated problems are as follows: First, how data and which will be das Sein. Then, the data will have States accepted the principle of cabotage in the be separated according to the variables in the title aviation sector?; and Second, what is the tendency of the study. Thus, it can be seen the data included of the Government of Indonesia in responding to in the cabotage variable in aviation law and data the cabotage principle in the aviation sector? included in Indonesia’s sovereignty variable in regulating cross-country flights in its territory. Then B. Research Methods the data arranged will be explained and evaluated 1. Type of Research in accordance with the framework of the problems Based on the opinion of F. Sugeng Istanto, addressed. Based on the explanation and evaluation the objective of the legal research can differentiate made a conclusion will be made in response to the whether it is an exploratory legal research, problems that have been formulated. descriptive legal research, explicative legal research, In reviewing the provisions and principles of or prescriptive legal research.6 This legal research law, the author will use a method of induction and constitutes as a prescriptive legal research, since deduction, as well as conduct interpretation of the this research will determine the actual legal fact on law, particularly with regards to Law No. 1 Year aviation activities in Indonesia. Threshold used to 2009 and the 1944 Chicago Convention. determine the legal fact is the provision of Article 7 of the 1944 Chicago Convention in conjunction C. Research Results to Article 85 of Law No. 1 Year 2009 relating to the 1. State Sovereignty in Airspace and Principle cabotage principle in the field of aviation. of Cabotage 2. Type of Data In the history of Roman law, there are two Within this legal research, the data sought is principles that apply to airspace. First, the airspace secondary data, either in the form of primary sources region acts as an international zone or res communis of law, secondary sources of law, or tertiary sources (collective right for all mankind). This theory was of law. Upon the secondary sources of law, it will introduced by Grotius, which had analogized it to the be completed with information obtained through sea at that time. Second, the principle that whoever interviews with the competent resources. owns land will also have everything above that 3. Method to Search Data land, up to the skies and all that is in the soil. This In search of data, literature studies will be principle is known as Cujus Solum est ejus est usque conducted in order to obtain secondary data, by ad Coelum.7 Further, the opinion of Grotius has reading books, related research results, as well as been applied to the issue of sovereignty in airspace

6 F. Sugeng Istanto, 2007, Penelitian Hukum, Ganda, Yogyakarta, p. 48. 7 Priyatna Abdurrasyid, 2003, Kedaulatan Negara di Ruang Udara, Riefka, Jakarta, p. 49. Purwanto, Principle of Cabotage within Aviation Activities in Indonesia  141 by Paul Fauchille. According to him, airspace is to member States of the Convention. However, in free.8 However, there were stern challenges from the aforementioned article, there still seems to be the opinions of English scholars and legal experts ambiguity over the meaning of complete, exclusive, from other countries, which in principle states that territory and air space, thus giving rise to various “airspace is not free”. Thus, at the time, there were interpretations.10 Especially with regards to the two groups on the ownership of airspace. The first “theory of sovereignty”, the airspace of a State group, those who opine that by nature, air is free. has been subject to juridical provisions. Even Its adherents can be grouped as followers of the Priyatna Abdurrasyid has said that: “specifically free theory. The second group, those who argue on state sovereignty towards airspace, States have that the State has sovereignty over air space above agreed that this condition amounts to customary its territory.9 In 1919, the international community international law which has been confirmed in the successfully established an international convention convention”.11 which is the Convention Relating to the Regulation Even though the 1944 Chicago Convention is of Aerial Navigation, Signed at Paris, October 13, the result of an agreement between member States 1919, or better known as the 1919 Paris Convention. of the international community, it still leaves certain Within the Convention, Article 1 states that: The issues, namely the absence of multilateral agreements High Contracting Parties recognise that every related to the matter of freedom in the air that can be power has complete and exclusive sovereignty over exchanged as a whole. States, through their national the airspace above its territory. airlines, can practice freedom in the air towards or Within its development, the 1919 Paris Con­ crossing other States which must be preceded by ven­tion began to be abandoned, and the interna­ a “bilateral agreement” between the States based tional community succeeded in forming a similar on the principle of reciprocity. The 1944 Chicago convention, namely the Chicago Convention on Convention only managed to formulate the kinds International Civil Aviation, Signed at Chicago, of freedom that can be exchanged between States, on 7 December 1944 or better known as the as set out in the International Air Services Transit 1944 Chicago Convention. In the 1944 Chicago Agreement12 (transit rights), and the International Convention, the issue of state sovereignty towards Air Transport Agreement, which managed to agree airspace has been regulated again in Article 1, upon “The Five ”. They are:13 stating that: The Contracting states recognize a. First freedom, the privilege to fly that every state has complete and exclusive. across the territory of state without Through the 1944 Chicago Convention, it has been landing. b. Second freedom, the privilege to land recognized that each State has sovereignty over for non-traffic purposes (technical its airspace. Hence, it is not limited only to apply landing)

8 Johnson, 1965, Rights in Air Space, Manchester University Press, Manchester, p. 21. 9 Ibid., pp. 54, 62-63. 10 According to Wassenbergh, the meaning of Article 1, that the State’s sovereignty over its airspace covers the entire airspace over the country (without limit of height) and can not be divided. The application of Article 1 would be complete, as long as there are no restrictions, either through a special approval for it, as well as provisions in other conventions. Other experts have also made a similar interpretation, among other things: According to Shawcross and Beamont complete and exclusive means without limit of height. According to Lemoine, complete and exclusive by definition is meant as ‘full power of the state from its soil, at least theoretically, until infinite heights, and practically all the areas that can be controlled by man”. Meanwhile, according to Lapradelle, an airspace is without limits. See Wassenbergh, 1957, Post-War International Civil Aviation Policy and the Law of the Air, Martinus Nijhoff Publishers, Leiden, p. 100. See also E. Suherman, 1984, Airspace and Regional Aerospace, Alumni, Bandung, pp. 5-6. 11 Priyatna Abdurrasyid, Op.cit., p. 97. See also Wassenbergh, Loc.cit. 12 Article 1, Section 1 International Air Services Transit Agreement declares that each contracting State grants to the other contracting States the following freedoms of the air in respect of scheduled international air services: (1). the privilege to fly across the territory of state without landing, and (2). the privilege to land for non-traffic purposes (technical landing). 13 Article 1 International Air Service Transit Agreement, Chicago, 7 December 1944. See Wassenbergh, Op.cit., pp.15-16. See also Marek Zylicz, 1992, International Air Transport Law, Martinus Nijhoff Publishers, Leiden, p. 80. 142 MIMBAR HUKUM Volume 28, Nomor 1, Februari 2016, Halaman 138-148

c. Third freedom, the privilege to put to another in one coast.15 For example, shipping down passengers, mail and cargo taken from Tanjung Emas to Tanjung Perak. Within the on in the territory of the state whose maritime encyclopedie (publishing of C.de Boer, nationality the aircraft possesses. d. Fourth freedom, the privilege to take Bussum, The Netherlands), cabotage is the transport on passengers, mail and cargo destined of people and goods by sea, air, land and inland for the territory of the state whose waters between two sites located within the same nationality the aircraft possesses. country. The right to carry out cabotage is granted e. Fifth freedom, the privilege to take on passengers, mail and cargo destined to citizens of the country concerned. When viewed for the territory of any other (third) from the linguistic aspect, the word “cabotage” state and the privilege to put down is taken from the word caboter that means to sail passengers, mail and cargo coming along the coast. According to the American heritage from any such territory. dictionary of English language, 4th edition, cabotage Moreover, through the theory and practice is “Cabotage is trade or navigation in coastal waters, of international air transport on the five freedoms or, the exclusive right of a country to operate the air mentioned above, such is equipped with new traffic within its territory”. According to the Black categories, namely:14 Law Dictionary, “Cabotage a term from Spanish, a. Sixth freedom, the privilege of is navigation from cape to cape along the coast carrying passengers, mail and cargo without going out into the open sea. In international between the territories of two foreign law, cabotage is identified with coasting-trade so states via territory of the home state of that it means navigating and trading along the coast the aircraft. between the ports thereof”.16 b. Seventh freedom, the privilege of In relation to aviation law, the principle carrying passengers, mail and cargo of cabotage obtains its stipulation from the 1919 between the territories of two foreign Paris Convention, which in Article 16, states that states without calling on the territory “Each contracting State shall have the right to of the home state of the aircraft. establish reservations and restrictions in favour of c. Eighth freedom, the privilege of its national aircraft in connection with the carriage cabotage (ie carrying passengers, of persons, goods and mail between two points on mail and cargo from one point in the its territory”.17 territory of a foreign state to other Furthermore, provision on the cabotage point in the same territory). principle in the field of aviation has been stipulated The eight freedoms above emerged in relation to again in Article 7 of the 1944 Chicago Convention, in Article 7 of the Chicago Convention, known as the which; each contracting State shall have the right to principle of cabotage. refuse permission to the aircraft of other contracting In French, the term “cabotage” is derived States to take on in its territory passengers, mail from the word “cabot” or “chabot” which means and cargo carried for remuneration or hire and small ship. While in Spanish, “cabotage” comes destined for another point within its territory. Also, from the word “cabe” which means “cap” or each contracting State undertakes not to enter into promontory meaning the transport from one cape any arrangement which specifically grant any such

14 Marek Zylicz, Loc.cit. 15 K. Martono and Amad Sudiro, 2009, Hukum Angkutan Udara Berdasarkan UU RI No. 1 Tahun 2009, Rajawali Pers, Jakarta, p. 51. 16 Henry Campbell Balck, 1979, Black’s Law Dictionary, St. Paul Minn West Publishing Co., Minnesota, p. 183. 17 Article 16 Paris Convention in K. Martono and Usman Malayu, 1996, Perjanjian Angkutan Udara di Indonesia, Mandar Maju, Bandung, p. 27. Purwanto, Principle of Cabotage within Aviation Activities in Indonesia  143 privilege (cabotage) on an exclusive basis to my other countries and for individuals to work in other other State or an airline of any other State, and not countries. to obtain any such exclusive privilege (cabotage) Unlike trade in goods, trade of air transport from any other State.18 services, especially concerning the right of passage, Within the aviation sector, the initial cannot take place without a bilateral agreement implementation of the cabotage principle which between the parties. In fact, air transport services in nature crosses borders occurred in countries trade obtains an exception to the application of the that obtained colonies, such as the UK. During Most Favoured Nations principle as contained in the existence of countries members to the British GATT. In Europe, liberalization has already begun Commonwealth, flights between Darwin, , a few years ago. Initially, flights from Europe Kuala Lumpur, Hong Kong, and London constitute airport have limited service of routes in the United as domestic flights and included flights under the States and vice versa. Now, this barrier does not principle of cabotage rights for the UK. For countries exist anymore. European airlines can fly to any that still retain the principle of cabotage, the destination in the United States from any airport issuance of operational permits for foreign airlines in Europe. Thus, they are now allowed to offer air in a country’s territory will be given under special transport services not only in the member States of considerations. Similarly, the United States had the European Union, but also to the United States. given cabotage rights to foreign airline companies 2. Implication of the Air Cabotage Principle during a massive strike by its pilots. Considering its in Indonesia national interests, eventually the United States had a. Juridical Basis abandoned the cabotage principle.19 Cabotage in relation to transport is a In line with the increasing needs of air term often used to refer to the transport of transport services which in nature crosses borders, goods or passengers between two points in as well as the development in economy, particularly the same country by vessels registered in trade in services20 in aviation, then the principle another country. Currently, cabotage also of cabotage becomes one of the objects of the air includes aviation, rail and road transport. In transport agreement. In the era of globalization, Indonesia, the cabotage principle is retained international trade has led to the emergence of trade for air transport, land transport and railway.21 liberalization policies, both in the regional and At first, the abandonment of the cabotage global/multilateral scale. At first, trade liberalization principle in sea transport was to essentially mostly involved goods, however, its development meet the shortage of transport provided also concerns the service sector, including air by shipping companies, including for the transport services. Within its ideal form, the transportation of goods and cargo. Such is liberalization of trade in services is a condition caused by, for one, geographical condition of in which every company and individual is free to Indonesia which consists of islands and each sell services beyond the boundaries of the country. island is inhabited by Indonesian citizens This includes the freedom to establish companies in and there are abundant natural resources.

18 Article 7 Chicago Convention 1944 declares that “Each contracting State shall have the right to refuse permission to the aircraft of other contracting States to take on in its territory passengers, mail and cargo carried for remuneration or hire and destined for another point within its territory. Each contracting State undertakes not to enter into any arrangements which specifically grant any such privilege on an exclusive basis, to any other State or an airline of any other State, and not to obtain any such exclusive privilege from any other State”. See Mieke Komar Kantaatmadja, Loc.cit. 19 K. Martono, 2009, Hukum Penerbangan Berdasarkan UURI No. 1 Tahun 2009, Mandar Maju, Bandung, p. 11. 20 Services in the negotiation establishing the World Trade Organization (WTO), within the Uruguay round in Marrakesh has accepted as one of the commodities object of trade, including air transport services. 21 As stated in Presidential Decree No. 39 Year 2014, business fields for passenger transport by land either in a route or not in a route of transport between provinces or between regions, and cross-border transport, the State only gives permission for domestic capital of 100%. 144 MIMBAR HUKUM Volume 28, Nomor 1, Februari 2016, Halaman 138-148

Between one island to another, it is separated strategic, because most of the by a fairly wide territorial waters. Each island transport from or to Europe goes has been provided a cape or port, making it through Schippol. easier to dock ships transporting between c. Consideration of national islands. However, currently based on Article security. In accordance with the 8 of Law No. 17 Year 2008 in conjunction provisions of the 1944 Chicago to Presidential Instruction No.5 Year 2005, Convention, every flight Indonesia will maintain the principle of crossing a country must obtain cabotage at sea. permission from the concerned Within the field of aviation, Indonesia, country. since the discussion of Law No. 15 Year Based on the considerations of the 1992 on Aviation,22 has retained the cabotage second opinion, eventually Law No. 15 principle. During that time, there were two Year 1992 still maintains the principle of opposite opinions. The first opinion requires air cabotage, as set out in Article 36 in abandoning the principle of cabotage with conjunction to Article 39 in which activities the consideration that if Indonesia does of commercial air transport serving domestic not disclaim this principle, and if Europe transportation can only be managed by the becomes a Union, then Garuda Indonesia is Indonesian legal entities that have obtained a unable to perform flights from Rome, Italy license. Hence, foreign airlines are prohibited to Schippol in the Netherlands, since such from conducting commercial air transport route is included in the domestic route of the in the country.24 This is in line with Article European Union. The second opinion retains 7 of the 1944 Chicago Convention on air the cabotage principle with the following cabotage. Only in the level of implementation considerations:23 has the Government of Indonesia been at a. To protect national airlines. If fault, which is based on Presidential Decree foreign airlines are allowed to No. 16 Year 1970 as the ratification of the operate in Indonesia, it is feared agreement between Indonesia and Thailand that the national airline would with regard to the exchange of traffic rights not be able to compete with for flights. Within this Presidential Decree, foreign airline companies. the Indonesian government issued a permit b. Whereas, the concern of trans­ (cabotage rights) to Thailand allowing return portation in Europe becoming flights from Jakarta - Medan - Singapore a Union is less likely to occur. - Kuala Lumpur - Bangkok - Hong Kong - This is because the Netherlands Tokyo. The Jakarta - Medan flight constitutes will not give traffic rights to the as cabotage. EU, since most of the national The cabotage principle under Law No. income in the Netherlands 15 Year 1992 is retained by Law No. 1 Year derives from the Air Transport 2009 as set out in Article 85 paragraph (1), sector. The Netherlands’ air in which scheduled domestic commercial air geographical position is very transport can only be managed by national air

22 This Law has been replaced by Law No. 1 of 2009 on Aviation. 23 K. Martono and Amad Sudiro, Op.cit., p. 52. 24 See Article 36 in conjunction to Article 39 Law No. 1 of 2009 on Aviation. Purwanto, Principle of Cabotage within Aviation Activities in Indonesia  145 transport business entities that have received b. Breaching Air cabotage principle in work permit for scheduled commercial Indonesia air transport business. Through Article 85 Within the stage of airline company paragraph (1), only national airlines can identification, one of the implementation operate in the territory of Indonesia. Even of State sovereignty in the exclusivity of the existence of Article 85 paragraph (1) is airspace over the airspace of a country reinforced by Article 108 (2) and (3), which is defined by the nationality of an airline states that: company, in which nationality of the airline a. National airline commercial company can be marked of its ownership business entities are wholly or and control. However, each State determines in partial of its capital must be different standards for it. The United States, owned by an Indonesian legal for example, stipulates that a country’s airline entity or a citizen of Indonesia. company must be at least 75% owned by a b. In terms of the capital of national citizen of the United States, European States airline commercial business have determined that ownership of share must entities owned by Indonesian be at least 51% owned by its citizens, while legal entities or citizens of Indonesia designates a 51% share ownership. Indonesia, is divided into The magnitude of the State’s influence numerous capital owners, one of and provisions on nationality of an airline them requires national investors within regulations concerning flight to obtain a greater share than the activities forces airline companies to search overall foriegn investors (single for business models in order to continue to majority). business activities which crosses countries Pursuant to Article 108, it is intended by not being in contrary to international that in the event capital ownership must be law which gives exclusivity of airspace divided between the national investors and to the State. Some of the business models foreign investors, with the single majority implemented is through business alliances or provision, the airline is still in control of code share with a domestic airline company national investors or national legal entities. for all domestic purposes. Alliance or code The provision in Article 108 is strengthened share with domestic airline companies by the invocation of Presidential Decree No. provide benefits for both parties, where for 39 Year 2014 dated 21 April 2014 on the international airlines, they can sell tickets for List of Business Fields Closed and Business international flights to final destination points Sectors Opened with Reservation in the which can only be provided by domestic Investment Sector. Within this presidential flights. As for domestic airlines, this alliance decree, particularly in the field of air can directly increase fulfilling aircraft seats transport, it is emphasized that in commercial with its domestic destination. air transport, the government has permitted The cooperation model beneficial to foreign capital of up to 49%, meeting the both parties is in its development, mainly specific requirements, and the national airline companies with a strong capital has investors should be greater than the overall developed into an expanded business by foreign investors, which in this case is 51%. buying shares of airlines which are is business’ alliances. Optimizing profits by buying shares 146 MIMBAR HUKUM Volume 28, Nomor 1, Februari 2016, Halaman 138-148

of airline companies from other countries has Pte, Ltd., 16% owned by Ireland’s Investment become the main purpose of corporate action. Pte, Ltd., and 24% belong to Indogo Partners Airline companies are also private companies, Coorp., while 49% which is the majority however, under both applicable international share is owned by Singapore Airlines Group. and national provisions, generally, ownership Based on the example of the two cases and control of national legal entities of an mentioned above, particularly regarding the airline company must be the majority. As ownership of shares has been in accordance mentioned above, under Indonesian national with national legislations, though, when law, relating to ownership set out in Article studied more in depth, then in terms of share 108 paragraph (3) in conjunction to Law No. ownership, it still controlled by foreign 1 Year 2009 in conjunction to Presidential investors. That being so, it is quite possible Decree No. 39 Year 2014, which essentially that Temasek Group Pte, Ltd., and Ireland states that national capital ownership should Investment Pte, Ltd., are foreign subsidiaries be greater than foreign capital ownership operating in Indonesia; also ownership (single majority) with a percentage of at least of national capital amounting to 51% is 51% for the national share ownership. As for not owned by one national investor. As a the term “control”, the national legislation result, if the national investors do not have has yet to set out provisions on this matter. an integrated decision within the general Upon the single majority provision, meeting of shareholders, they would be practice in the field has shown indications outvoted. It can be seen in PT IAA with its that weaken national investors. Such is airline fleet known as Air Asia, has conducted because the amount of national capital flights between from and to one airport to which is 51% has been split into multiple other airports in Indonesia. Likewise, Tiger shareholders or investors, thus, the ownership Airways with its airline fleet known as Tiger is not of a single majority. Meanwhile, value Mandala has served flight routes for more for foreign investors is still 49%. Based on than 20 cities in Indonesia. Such as Ambon, this composition, shareholders meeting will Medan, Kendari, Makasar, Gorontalo, be dominated by foreign investors, hence Banjarmasin, and so forth. the company’s policy will be under foreign Slightly different from the practice airlines. Such example can be seen in the local of Silk Air, as stated by Marvin, Chief shareholders in PT Indonesia Air Asia (IAA), Executive Officer (CEO) of Silk Air, which Tiger Airways Airlines and Silk Air Airlines. offers a different flight experience with other PT IAA is controlled by four parties, 51% airlines. Among them is a service to take care of shares ownership is by national investors, of “boarding pass” for passengers who intend namely, 21% by the Sandjaja Wilaya family, to continue their journey from Singapore to 20% by the Pin Paris family, PT Fersindo any other international routes. This service is Nusaperkasa as much as 10%, whereas the not only for passengers who want to use the remaining 49% is held by Air Asia Group services of the airline, but also to passengers (Malaysia).25 Likewise with Tiger Airways, who intend to continue their journey wtih ownership of local shares is 51%, but it is planes owned by Singapore Airlines. “We divided into 11% owned by Temasek Group are part of Singapore Airlines”, said Marvin.

25 Erlangga Djujmena, “Investor Lokal Air Asia Sepakat Buat Holding”, http://edukasi.kompas.com/read/2011/06/16/12025843/Investor.Lokal. AirAsia.Sepakat.Buat.Holding , accessed on 8 October 2014. Purwanto, Principle of Cabotage within Aviation Activities in Indonesia  147

With this facility, the Bandung – Singapore This is because of the weak supervision route could be an option for international (either directly or indirectly) on investment passengers who plan to continue their in the field of air transport, thus opening flight to another country, which all this opportunities for the possibility of the time has been utilizing Soekarno Hatta smuggling of investment law, which in turn Airport. Interestingly, Silk Air Flights from the national capital market is controlled by and to Singapore including Bandung has foreign parties through national legal entities already flied to nine cities in Indonesia, and and national laws which in this case is in the Singapore Airlines has already flied to 11 form of covert cabotage, in order to declare cities in Indonesia. Hence, as explained by that commercial air transport services in the CEO of Silk Air above, if from Bandung Indonesia has not violated the principle of and after arriving in Singapore plans to fly to cabotage. Manado, Pekanbaru, Medan or Balikpapan, In terms of policy, the Government it would be an international flight with the of Indonesia gives too much freedom in ongoing “boarding pass” service. Whereas, domestic flight routes, airlines coming to for example, flights from Bandung to Indonesia generally only belongs to low cost Manado are inter-city domestic flights, and carrier (LCC), instead of flying premium should be serviced by national airlines, if class. As a consequence, economically, not then it would be in violation with the Indonesian passengers prefer services of low- Law on Aviation for violating the principle cost foreign airlines, including foreign airlines of cabotage. But this is easily debated that in cooperation with national employers for such situation would not be cabotage since it national commercial airline services.26 As a passes Singapore, becoming an international further result, national airlines fail to compete flight. The same goes for if the flight crossed with airlines from code share, which in some Kuala Lumpur, for example with Air Asia. ways although its capital ownership does Therefore, Singapore and Kuala Lumpur not violate the principle of single majority, will be the “hub” of air transportation in but the fact is that it is divided to several Indonesia. Even if the flights continued capital owners. Even one or two of them are from Singapore to cities abroad, Singapore foreign subsidiaries operating in Indonesia. and Kuala Lumpur are not just “hubs” but Moreover, the foreign parent company is potential Indonesian gateways. The difficulty from the same country of the 41% foreign of flying from Bandung to Manado with investor. National Airlines requires going through Jakarta instead. Thus, passengers have to go D. Conclusion to Jakarta first by road, thus, it will be easier Based on the description above, it can be to go through Singapore or Kuala Lumpur. concluded as follows, that: First, state’s acceptance These practices are found within of the principle of air cabotage until today still domestic flights, although under formal includes groups that still maintain the cabotage juridical such does not violate aviation law, principle in order to protect its national airlines and but in fact there has been covert practice over for security of the State. However, practice leads to the violation of the principle of cabotage. the smuggling of air cabotage. Other State’s group,

26 Adi Kusumaningrum, 2012, Prinsip Cabotage dalam Industri Penerbangan Indonesia di Era Asia Single Aviation Market 2015, Arena Hukum, p. 3. 148 MIMBAR HUKUM Volume 28, Nomor 1, Februari 2016, Halaman 138-148 has abandoned the cabotage principle, which is in If the government wants to provide protection line with the development of trade liberalization in against airlines in the country, it should supervise air transport services. of investment in the field of air transport should Second, the Government of Indonesia, in be enhanced, thus the practice of covert cabotage a juridical manner, still maintains the principle can end immediately. Increased surveillance is also of cabotage for air transport, although in practice in line with the law enforcement of the cabotage there are instances of covert cabotage in some principle which is still within the government of foreign airlines allowing to operate in Indonesia. Indonesia’s commitment.

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